Prosus gives up on Byju’s, writes off its entire investment in the online tutor

Dutch technology investor Prosus Ventures has given up on its entire $530-million investment in Byju’s, six years after it first backed what would become India’s most-valuable startup before a collapse that’s cast an ominous shadow on the country’s edtech sector.

Prosus, announcing its annual report on Monday, said it had written off the “fair value of its 9.6% effective interest in Byju’s, due to the significant decrease in value for equity investors”, and that it had recognised a loss of $493 million on the investment in the 2023-24 financial year.

The Dutch investor’s stake in the online tutor was estimated to be worth about $2 billion just two years ago, when Byju’s was riding a peak valuation of $22 billion. The company has since fallen from its perch amid a series of reported business and financial missteps, including accusations of misselling and billions in unpaid debt.

Almost exactly a year ago, Prosus slashed its valuation of Byju’s to $5.1 billion, shortly after its representative resigned from the board of Think and Learn Pvt. Ltd, the edtech firm’s partent company. Representatives of Peak XV Partners and the Chan Zuckerberg Initiative also resigned from Byju’s board.

A few months later, in November, Prosus further slashed its valuation of Byju’s to $3 billion. 

Also read | Byju's value drop: Foreign investors have an odd objection

“We continue to be very interested in the education space, with high digital adoption of education globally... But all three education companies in our portfolio have not performed—Stack Overflow, Skillsoft and Byju’s,” a spokesperson for Prosus said during the firm’s earnings call on 24 June. “Byju’s has been a challenge to our performance in the last year.”

While Prosus’ investment in Byju’s turned in a 100% negative internal rate of return, US-based Stack Overflow and Skillsoft have registered a negative IRR of 39% and 59%, respectively, the firm said in its report.

The Prosus spokesperson, however, added that the investment firm still had hope for Byju’s. 

“There are a number of actions that the company’s management has taken. We have hope for the company’s outlook,” the spokesperson said during the earnings call. “The key for us (is) to change the governance of the company. That is the first step.”

An escalating crisis

Several investors have revalued their stake in Byju’s recently. US investment BlackRock earlier this month slashed Byju’s valuation to zero, while asset management company Baron Capital Group reduced it by 99.85%, valuing the company at about $24 million.

“In a bull market, everyone is happy. As soon as it’s a bear market, all big funds tend to aggressively mark down valuations as low as they can. And then try to salvage it through legal routes in the worst cases. Whatever they get out of it is a win,” said an industry expert, declining to be identified.

She added that in Byju’s case, while all major investors have written it down, it’s only their perception and the company’s actual worth can only be judged from an external round of funding. For Byju’s, it has been more than two years since it raised money from new investors.

“Investors usually mark down on the basis of the fund’s risk policy, progress of the business and macro conditions. All three of which have not worked in Byju’s favour, forcing BlackRock, Baron and Prosus to take this step,” she added.

Prosus had first invested $383 million in Byju’s in 2018, ​​leading a $540-million funding round that included General Atlantic and the Canada Pension Plan Investment Board. Byju’s was then valued at $3.3 billion. 

But Byju’s relationship with its investors has soured over the past year. 

Prosus and other investors in Byju's, including PeakXV Ventures, General Atlantic and Sofina, are seeking to oust Byju Raveendran as the chief executive of the company he founded 13 years earlier.

At the core of this is Byju’s contentious $200-million rights issue at a throwaway valuation as funds dried up. This threatened to wipe out the stakes of most of the company’s top investors unless they participated in it. Investors wanted more clarity and oversight on the funds amid alleged mismanagement by the company’s founders.

Also read | Classroom to courtroom: Lenders seek Byju's insolvency

The Bengaluru bench of the National Company Law Tribunal, however, has restrained Byju’s from using the proceeds from its rights issue. Byju’s also could face bankruptcy proceedings in the US over a $1.2-billion term loan.

Prosus was among the investors that called for an extraordinary general meeting of Byju’s shareholders earlier this year to seek Raveendran’s ouster.

Following the meeting, which Byju’s has deemed as invalid, Prosus said shareholders had passed resolutions aimed at resolving “outstanding governance, financial mismanagement and compliance issues”, reconstituting the board of Think and Learn, and changing the company’s operational leadership.

Swiggy, PayU in good books

As for Prosus’ investments in food-delivery startup Swiggy and payment service provider PayU, the investment firm reported healthy numbers. 

On Swiggy, Prosus said the company's operating leverage had improved “as the business added revenue streams like restaurant advertising and introduced nominal platform fees which supported improved operational profitability”.

Swiggy’s “revenue on a local reporting basis grew 24% in local currency, excluding M&A. In its tenth year of operations, Swiggy‘s GOV (group order value) grew 26% year on year, and its ever-transacted user base reached the milestone of 104 million at the end of December 2023, supported by a fleet of around 387,000 active delivery partners,” Prosus added.

It, however, refused to comment on whether it would sell its stake in Swiggy during the delivery company’s upcoming IPO. Prosus, which holds a 36.4% stake in Swiggy, also did not disclose the internal rate of return earned from the company citing the public listing.

Also read | Edtech firms must work out a code of conduct, says TV Mohandas Pai

As for PayU, which has considerable operations in India, Prosus said it earned an IRR of 21% from the company, adding that the payment service provider (PSP) continued to scale up and improve on profitability.

“PayU grew consolidated revenue 22% (38%) to $1.1 billion in FY24, driven by the PSP businesses in Turkey (Iyzico) and India, as well as India credit,” Prosus said about the payments business.

“PayU’s core PSP and credit businesses delivered strong revenue and increased scale. Notably, this was achieved despite pending regulatory approvals in the Indian PSP business and new regulation impacting our Indian credit business,” Prosus said. 

“After an embargo of 15 months, we received in-principle authorisation by the Reserve Bank of India on 23 April 2024 to operate as a payment aggregator and this allows PayU India to onboard new merchants.”

Online medical store Pharmeasy, however, disappointed, with Prosus saying it recorded an IRR of -35% from the company.

Prosus’s investments in e-commerce platform Meesho earned it an IRR of 26%, and in business-focused e-commerce platform ElasticRun, 30%.

Also read | How SoftBank-backed ElasticRun has revamped its strategy to improve margins, hit profitability